We recently spoke to our VEE Corporate Finance course instructors, Johnny Li and Andrew Ng, about how the curriculum of their course is specifically designed to support students prepping for actuarial exams and pursuing actuarial work. Actuaries play a critical role in business and society, helping organizations manage complex risks across many industries. Knowledge and understanding of balance sheets and finance is a prerequisite for your actuarial skillset when performing risk evaluation and strategic decision-making in business.
Below Professors Li & Ng lays out evidence of the connection between their course and actuarial work:
- Actuaries often interact with accountants. As a simple example, reserves (which actuaries calculate) belong to the liability side of a balance sheet (which accountants work on). Basic accounting and financial statement analysis skills are covered in Module 1 of our course.
- The concept of profit testing (which actuaries use very heavily in practice) stems from the concept of NPV (Net Present Value) that is taught in Module 2 of the course, as well as investment decision rules, which are used extensively among consulting actuaries.
- In the chapter on Real Options, the binomial model and Black-Scholes formula are taught. These techniques can be applied readily to GMxBs (Guaranteed Minimum Benefits) in variable annuities as well as guaranteed annuity options, which many actuaries encounter in their workplace.
- Investment actuaries are often challenged by asset allocation problems. These problems and their solutions such as the mean-variance optimization approach are discussed in Module 3 of our course. The “Pecking Order Theory” taught in Module 4 may also aid in making wise investment decisions.
Li & Ng also highlight the connection between their course and actuarial exams:
- The basic accounting and financial statement analysis skills covered in Module 1 of our course are often useful in the assignments and final assessment of the SOA’s Fundamentals of Actuarial Practice (FAP).
- The concepts of IRR (Internal Rate of Return) and NPV (taught in Module 2 of our course) are closely related to the syllabus requirements of Exam FM. In addition, the discussion of profit testing in Exam MLC draws heavily on the concepts of NPV and discounted payback period, which are covered in Module 2.
- Students should find that the option pricing techniques taught in Module 2 useful in Exams IFM/MFE, ERM, QFI and ILA.
- In the SOA’s “Foundations of CFE” exam (Topic 1), candidates are expected to know about capital budgeting, capital structure policies, the Modigliani-Miller theorems and real options. These topics are discussed in Modules 2 through 4 of our course.
Johnny Li, Ph.D., FSA, teaches our VEE Corporate Finance Course along with Andrew Ng, Ph.D., FSA. Johnny Li is the holder of the Fairfax Chair in Risk Management and an Associate Professor at the University of Waterloo. He holds a Ph.D. degree in Actuarial Science from the University of Waterloo and is a Fellow of the Society of Actuaries (FSA). He also received B.Sc. and M.Phil. degrees from the University of Hong Kong.
Andrew Ng, Ph.D., FSA, is an Associate Professor of Practice in Actuarial Science at the Chinese University of Hong Kong where he teaches a broad range of actuarial science and finance courses, including life contingencies, risk modeling, derivative securities and business forecasting. In 2012, he was awarded the Vice-Chancellor’s Exemplary Teaching Award from the Chinese University of Hong Kong. Dr. Ng received his Ph.D. from the University of Iowa.
Please Note: Beginning in July 2019, the VEE Corporate Finance topic is getting a name change and an addition of a new topic, accounting. It will become a two-component requirement with the ability to separately earn Accounting and Finance credit. We will be updating our VEE Course options in late 2018 or early 2019 to ensure that ACTEX provides opportunities to fulfill both the Finance and the Accounting VEE components.